Going Global- Should benefits assessments include effects on other nations?

by Ted Gayer, Brookings Institution & Kip Viscusi, Vanderbilt
June 11, 2014

Recent assessments of climate change policies have shifted from a domestic to a worldwide benefits approach, leading to a substantial increase in the estimated benefits. Examination of the justification of benefits assessments for GHG emission reductions suggests that government officials have gone outside the typical practice for defining the scope of benefits assessment. The justifications offered by the Interagency Working Group on Social Cost of Carbon offer weak justification for this approach. Our review suggests more convincing justification in which explicit reciprocity would justify giving economic standing to citizens of other countries and demonstrable feelings of altruism would justify partial economic standing to citizens of other countries.

It is important to note that granting the GHG benefits to non-citizens equally to the benefits to citizens represents a dramatic shift in policy, and if applied broadly to all policies, would substantially shift the allocation of societal resources. The global perspective would likely shift immigration policy to one of entirely open borders, as the benefits to granting citizenship to poor immigrants from around the world would dominate any costs to current U.S. citizens. It would suggest a shift away from transfers to low-income U.S. citizens towards transfers to much lower-income non-U.S. citizens, elevating policy challenges such as eradicating famine and disease in Africa to the most pressing concerns for U.S. policymakers, trumping most domestic efforts in terms of their impact on social welfare. And a shift in policy towards fully counting the costs and benefits towards citizens of all other countries would suggest a drastic change in defense policy. A shift in policies to foster such efforts, while in many cases worthwhile, would not be consistent with the preferences of the U.S. citizens who are bearing the cost of such programs and whose political support is required to maintain such efforts.

Rather than adopt a global or narrow domestic perspective on benefits, there should be increased emphasis in trying to distinguish what the pertinent value of the global impacts of SCC reductions are from a domestic perspective. This effort will also entail a related task of obtaining a more meaningful estimate of the domestic share of the SCC benefits over the pertinent time frame for policy assessment. Addressing these benefit issues is not infeasible, but requires a stronger empirical foundation and a stronger theoretical basis than assuming that global benefits are tantamount to domestic benefits.

Should there be a shift to a global benefit-cost perspective despite the many attendant problems, there would need to be a much more rigorous and balanced evaluative structure. If global benefits are counted, one should also count global costs. At present, the GHG policy assessment experience is one in which agencies apparently are permitted to pick and choose what perspective to take and which benefits and costs to count. As a result, there will be an incentive to engage in cherry picking whereby agencies will count global effects that are favorable to the agency’s agenda and ignore global impacts that put the agency’s concerns in an unfavorable light. 

Explicit, well-defined guidance is needed to replace the recent movement to a rudderless policy assessment approach. This guidance also must specify how the distributional weights applied to global effects will be determined rather than assuming a default value of a weight equal to effects for the U.S. citizenry. If global consequences are permitted to govern the terms of the benefit-cost analysis, then the selection of policy initiatives likewise should be governed by global considerations, subject to compliance with U.S. law. Whether it makes sense to routinely expand the scope of the assessed policy impacts beyond the citizenry of the nation bearing the costs is highly problematic. What is clear at this juncture is that the recent expansion of GHG benefit assessments to include global impacts merits much more scrutiny and justification than it has received to date. There should be a thorough evaluation of the broader implications of this fundamental restructuring of policy assessment practices before jettisoning the current emphasis on the valuation of domestic benefits and costs.

Click here to view pdf